New Indian nuclear liability rules

18 November 2011

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New rules published on 11 November have clarified the amounts that nuclear material and equipment suppliers may find themselves liable for in the case of a serious accident at an Indian nuclear power plant.

In August last year, the Indian government approved the Civil Liability for Nuclear Damages Act – the aim of which is to provide for prompt payment to victims of any nuclear accident that takes place within the country. The act broadly conforms to the usual principles of nuclear civil liability although several unique features proved controversial.

One of these was that the act allowed operators of nuclear facilities to have 'right of recourse' against equipment suppliers if "the nuclear incident has resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services." No other nuclear country includes such a condition, as it sits uncomfortably with the principle of exclusive liability, which states that the operator is the one responsible for paying compensation in the case of an accident.

The result of this clause so far has been that foreign supply companies, especially those based in the USA, have been unwilling to supply to India because of this unexpected extra risk. This has led to a stagnation in a market place which had been predicted to burst into life with the finalisation of a nuclear trade agreement between India and the USA in 2008.

The recent rules seek to remove this blockage by explaining to suppliers the amount of 'recourse' they may potentially be exposed to. This will be for an amount that "shall in no case exceed the actual amount of compensation paid by [the operator] up to the date of filing such claim" or "the value of the contract itself, whichever is less".

The rules also explain the length of time that suppliers are be subjected to this risk: "The provision for the right of recourse shall be for the duration of initial license issued under Atomic Energy (Radiation Protection) Rules, 2004 or the product liability period, whichever is longer".

Foreign suppliers have yet to indicate if the new rules give a reasonable framework for them to do business, and the text still contains language that exposes suppliers to potential tort claims against operators separate from the capped amounts for liability. Some companies have said that they will hold off on supplying to India until it ratifies the Convention of Supplementary Compensation (CSC) – an international treaty that sets certain requirements for operator liability for countries that join it. India signed the convention late last year, but has yet to ratify it despite stating its firm resolve to do so. Some commentators have questioned whether the Indian Act comports with the requirements of the CSC. This means that the unusual nature of the Indian liability Act may yet be subject to international scrutiny.